FAMILY COMPLIANCEBy: Martin Salas
Published in Semana Económica on 06/17/2018
The objective of implementing a corporate governance and a compliance model is to generate self-control framework that help a company to prevent the issues created by power centralization and to exercise the ‘check and balance’ as one of the most effective management practices. The question is, how is the concept of self-control and decision making delegation possible in a family business, especially in a first generation one where the founder is all-mighty?
In compliance, the key is always to go beyond the legal requirements (DL 1352). Making Compliance part of the culture of the organization, allows a family business to strengthen its family values foundation and by doing so, make a favorable differentiating factor versus distant multinational companies that usually have better commercial and financial management models. The values put into practice provide a competitive advantage to win over consumers, suppliers and other ‘stakeholders’. Famous cases: SC Johnson in the US, Carvajal in Colombia or, the Lindley family in Peru back in the days of Inca Kola, Lindley
The establishment of a compliance committee in the board of directors where cases of conflict of interest and ethics are reviewed (in addition to those of fraud/crime prevention) provides a commitment notice to all the organization. The composition of the committee should include both family members and independents. The founder and family members must be convinced of the value it creates. Without that ‘buy in’ the process will merely be a legal. In Peru, the presence of independent board members is 35%, lower than the regional and global average (SE 1592). In family businesses it is usually even smaller. There exists an opportunity for improvement.
One of the cases where the implementation of corporate governance and compliance has been successful is Breca. The conglomerate took the opportunity of transition between the second and third generation and started the transformation. The sponsorship of the second generation was key and the alignment of the third critic to carry out a process of transformation not only of corporate image but cultural. One that promoted values as the common glue among the different businesses, driving not only the implementation but also the practice of a corporate governance, compliance and management model.
Finally, the full implementation of corporate governance and compliance is not a silver bullet. However, implementing them in a family business, creates intangible value to the company, increases its chances of sustainability, and therefore extends its life horizon allowing the continuous participation of the next generations in its success and legacy construction.